USD/JPY heavy with technicals pointing to further downside

Currently, USD/JPY is trading at 112.70, down -0.04% on the day, having posted a daily high at 112.81 and low at 112.59.

USD/JPY is consolidated in a quiet start to the end of the week for Asia. The major has been trading in a 25 pip range for the best part of the market overnight after dropping below the 113 handle where the yen was perhaps catching a modest bid yesterday in equity markets.

Risk-off markets favour the yen and is sensitive to the 10-year differential where US yields on the long end dropped significantly when US Treasury Secretary Mnuchin said a long bond (50yr to 100yr) is worth consideration, and that tax reform by August is the aim. Meanwhile, looking back to the FOMC minutes, analysts at Bank of Tokyo Mitsubishi explained that they have been classed by the market as more on the dovish side and while we would question how long that conclusion will last, they explained that there is certainly scope for it to last over the relatively short period of a week when there are no major data releases or events to alter sentiment. 

Key risk events ahead

The same analysts noted the key risk events ahead for the Yen: "The payrolls will not be released as usual on the first Friday due to the shorter February and hence will not be released until 10th March. Event risk appears more skewed toward risk aversion if political risks intensify in Europe again and hence yen strength is our bias for the week ahead, especially when coupled with the current momentum in the wake of the FOMC minutes."

USD/JPY levels

USD/JPY short-term technicals have been bearish and USDJPY remains capped and heavy in Tokyo albeit with a slight bid on the hourly sticks. Spot was easing under the base of hourly cloud support and analysts at Scotiabank argued that a weaker tankan (moving average) signal supports the outlook for a little more short-term weakness. 112.50 is first support ahead 112.07 30th Jan low guarding Feb lows of 111.58. "Only below 111.59 would introduce scope to the base of the cloud, which lies at 109.92 and, if seen, we look for this to hold (this is also the 50% retracement of the move up from November).," argued analysts at Commerzbank, adding, "The topside remains capped by the 55 day ma at 114.96."